Bombay High Court
Grand View Estates Pvt Ltd vs Board For Industrial And Financial … on 23 February, 2026
2026:BHC-OS:4981
IA-6953-2025 (f).doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION NO. 6953 OF 2025
IN
COMPANY PETITION NO. 385 OF 2002
Grand View Estates Private Limited ...Applicant
In the matter of :
Board for Industrial and Financial Reconstruction...Petitioner
Versus
The Official Liquidator of the Swadeshi Mills Company Limited
(in liqn.) and Others ...Respondents
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Mr. Janak Dwarkadas, Senior Advocate a/w Mr. Shansh Sengupta, Mr. Siddharth
Ranade, Ms. Nishi Bhankharia, Mr. Vedant Kumar, Mr. Gaurav Jain, Ms. Neeraja
Barve i/b M/s. Trilegal for Applicant.
Dr. Virag Tulzapurkar, Senior Advocate a/w Ms. Vaishnavai Dhure i/b mr. Amir
Arsiwala for Respondent No. 2.
Mr. Cyrus Ardeshir, Senior Advocate i/b Mr. Yash Jariwala for Respondent No. 3.
Mr. Mohit Khanna, Mr. Pranav Varsaria and Mr. Tejas Popat i/b Mr. Pravin Patil
for Respondent Nos. 4 and 5.
Mr. Ranjeev Carvalho, Ms. Apurva Thipsay for Official Liquidator.
------------
Coram : Sharmila U. Deshmukh, J.
Reserved on : 12th December, 2025.
Pronounced on : 23rd February, 2026.
Judgment :
1. A Company ordered to be wound up by order dated 5th
September, 2005, is sought to be revived by the Applicant after earlier
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of Shapoorji Pallonji Group and together own about 52% share holding
of Swadeshi Mills Company Ltd-the Company (in liquidation), and has
filed the present Application invoking powers under Section 466 of the
Companies Act, 1956 [for short, “Companies Act“] seeking stay of the
winding-up order dated 5th September, 2005 passed by this Court and
for other consequential reliefs.
2. The Company in liquidation prior to its winding up was operating
as a composite textile mill engaged in textile business. In the year
1997, Petition came to be filed in this Court by Ralli Brothers and
Coney under Section 433 of the Companies Act seeking winding up. As
the net worth of the Company became negative in February, 1998, a
statutory reference was made to the Board for Industrial and Financial
Reconstruction which declared the Company a sick company and by
order dated 5th February, 2001 recommended that the Company be
wound up.
3. Pursuant to the recommendations, this Court admitted various
winding-up petitions and on 13th February, 2002, appointed a
provisional liquidator. Court Receiver came to be appointed and
finished goods of the Company came to be sold. Vide resolution dated
28th September, 2001 issued by Government of Maharashtra, a High
Power Committee (HPC) was appointed to look into the matters
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IA-6953-2025 (f).docrelated to the payment of dues of workers, bankers and financial
institutions of the Company. This HPC was permitted by order of 21 st
June, 2002 of this Court to dispose of the assets of the Company.
Accordingly, HPC disposed of the entire plant and machinery. The sale
proceeds were utilised for part payment of dues of workers, secured
creditors etc. The winding up was ordered on 5th September, 2005.
4. The Industrial Development Bank of India [for short, “IDBI”] and
Bank of Baroda [for short, “BOB”], who were the secured creditors
obtained recovery certificates from Debt Recovery Tribunal on 26th
February, 2003. IDBI transferred its loan to Stress Assets Stabilisation
Fund [for short, “SASF”], which debts were acquired by the present
Applicant by way of assignment from SASF and BOB on 1st December,
2006 and 31st August, 2007 respectively. The Applicant preferred an
application before DRT for being substituted in place of SASF and BOB
on the Recovery Certificate, which was allowed. It is claimed that the
resultant position is that the Applicant is the secured creditor of the
Company in liquidation. It is claimed that the Applicant’s security
interest includes mortgage by deposit of title deed over the
properties of Swadeshi Mills situated at Chunnabhatti, Mumbai
including the mill premises and the approximate debt is of Rs. 985
crores.
5. The broad contours of the revival scheme proposed in the
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present Application is as under:
AS REGARDS PAYMENT OF DEBTS AND LIABILITIES:
(a) Safeguarding the interest of all erstwhile workers
including 469 badli workers and families of deceased
worker by paying 100% of worker’s dues and additional
compensation as per the Agreement for settlement
amounting to approximately INR 237.08 crores and
providing low cost housing.
(b)The deferment of dues of Applicant and Respondent
No 2, who are secured creditors of INR 1,100.81 crores
as on 22nd January, 2025 as per mutually acceptable
payment schedule with Company in liquidation to
facilitate business operations .
(c) Dues of 70 unsecured creditors out of 146 unsecured
creditors have been assigned to the group companies of
Shapoorji Pallonji group which includes the Applicant and
Respondent No 2. The deferment of dues of INR 124.49
crores as per mutually agreed terms with the Company.
The outstanding dues of the remaining unsecured
creditors of INR 5.45 crores to be settled by the
Applicant.
(d) Dues towards claims of eight co-operative societies of
Rs 3.29 crores to be paid out of amount of INR 240 crores
deposited by the Applicant with Official Liquidator.
(e) Statutory Dues of Rs 4.51 crores to be settled from
the amount of Rs 240 crores deposited by the Applicant
with Official Liquidator and any additional amount being
adjudicated shall be paid by the Applicant.
(f) Recovery of dues of Employees State Insurance
Corporation and Profession Tax Department of Rs 1.99
Crores and Rs 0.70 Crores paid by the Applicant to be
deferred as per mutually agreed terms between the
Applicant and the Company.
(h) The liquidation costs to be borne by the Applicant.
(i) Dues payable to the Applicant of INR 1.09 Crores on
account of the security charges undertaken by the
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Applicant to be deferred.
AS REGARDS REVIVAL OF BUSINESS:
Diversifying the business activities into other fields
including real estate development involving the
immoveable properties owned by the Company in
liquidation.
6. The change of circumstances since the prior failed attempts are
(a) revival plan is supported by the Company’s stakeholders, (b) revival
plan serves larger public and economic objectives, (c) commissioning of
technical feasibility report confirming that revival of textile business is
not viable, (d) unconditional support of workers who had earlier
opposed the stay of winding-up. The dues of the Applicant is about Rs.
985 crores and what can be sold in winding up proceedings is only
equity of redemption.
7. The Applicant has filed an Additional Affidavit on 27 th May, 2025
stating that in furtherance of the resolution passed in extraordinary
general meeting held on 14th May, 2024, the company was authorized
to create mortgage/charges/hypothecation/pledge and or other
encumbrance on the assets of the properties of the company and that
the company has created a charge by way of first-ranking mortgage in
favor of IDBI Trusteeship Services Ltd. to secure the borrowing of Rs.
380 crores advanced to the Applicant by Asia Pragati Investment Fund
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for purpose of revival of the Company which includes the amount of
Rs. 240 crores raised for the purpose of complying with the order
dated 21st December, 2022.
8. The application for stay of winding up is opposed by two
shareholders of the Company (in liquidation) who have 0.07% and
0.0032% shareholding in Swadeshi Mills. The reply affidavit of
Respondent No 4 dated 28th May, 2025 contends that the proposed
revival scheme is the same scheme presented in an identical Interim
Application No. 3663 of 2022, which came to be set aside by Hon’ble
Division Bench categorically holding that the revival scheme was only a
means to acquire the prime asset of the company (in liquidation) at
throw away price. It is stated that the deposit of Rs. 240 crores with
the Official Liquidator or the EOGM of the company do not qualify for
change of circumstances. It is contended that the EOGM only approves
diversification of business and not the revival scheme. It is stated that
out of approximately 54% shareholders, who have purportedly voted
in favor of change in the object of the company, 53.25% shareholders
are the Applicant and Respondent No. 2 themselves and even this
shareholding has been acquired after winding-up order. It is stated that
the Hon’ble Division bench has held that the deposit of Rs. 240 crores
cannot result in any equities being claimed and that the sum of Rs. 240
crores were raised by the Applicant by mortgaging the assets and
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further receivables of the company itself and not out of its own funds.
9. It is stated that as per 116th Annual General Report of the
Swadeshi Mills Company, the liability of the company was
approximately Rs. 1569 crores and when compared with the liabilities
of the company in the year 2011, the same was Rs. 375.33 crores which
makes it evident that the Applicant has been attempting to saddle the
company with additional liabilities. It is stated that if the public auction
is conducted, the company will be able to realize the maximum value of
the land which can ensure that even after all liabilities are paid off, a
substantial amount will remain for distribution to the members of the
company and that the proposal of the Applicant does not reflect the
provision made for balance of 46.75% shareholders which includes the
opposing Respondents. It is stated that the feasibility report submitted
by the Applicant is self-serving report.
10. In rejoinder Affidavit, the earlier stand is re-iterated and it is
further contended that the creation of the mortgage was during the
period the Company was out of liquidation. Given the encumbered
nature of the assets, the winding up will result in distress fire sale
prejudicing all stakeholders. The revival plan includes public interest as
it provides for low cost housing for workers, redevelopment of long
dormant land and establishment of textile training institutions in line
with the State textile policy.
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11. The Respondent No. 1-Official Liquidator by its reply stated that
it has taken possession of the factory premises of Swadeshi Mills in
July, 2002. The movable properties were sold by the High Power
Committee for Rs 15,26,62,222/- and thereafter, High Power
Committee was discharged by order dated 25th August, 2006 and
Official Liquidator was appointed. The Official Liquidator is in
possession of : (a) factory premises of Swadeshi Mills situated at
Chunabatti, Sion, Mumbai, and (b) Tata Textiles Holiday Home,
Panchgani (1/3rd share in Plot No. 536, 536A and 540). There are
various other assets available as listed in Official Liquidator’s Reports
submitted from time to time. The Official Liquidator has addressed
correspondence to the concerned authority for removal of
encroachment on property of the Company. The Official Liquidator is
unable to take any concrete steps for auctioning of the immovable
properties of the Company due to several difficulties including carrying
out survey. The workers and unsecured creditors have been paid Rs.
169,00,87,538/-.
12. The Respondent No. 3-recognized union of ex-workers of
Swadeshi Mills supports the Applicant. The reply Affidavit set out the
details of MOU executed in the year 2010 with the Applicant agreeing
to make payments to the ex-workers of Swadeshi Mills upon being
brought out of liquidation. It is pleaded that the settlement has been
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reduced in writing in form of Agreement for settlement dated 28 th
February, 2020 and the Supplementary Agreement dated 29 th June,
2021. Out of 2834 ex-workers of Swadeshi Mills at the time of its
winding-up, 2625 have given their express consent and the remaining
ex-workers are either untraceable or have expired without leaving
behind any legal heirs. It is stated that after 23 years of appointment of
provisional liquidator, it is unjust for ex-workers to avoid the outcome
of winding-up which would now effectively restart if the application is
dismissed and if the winding-up is stayed, the ex-workers will receive
their payment and it is in the interest of the ex-workers that the
proposal of the Applicant be accepted.
SUBMISSIONS:
13. Mr. Dwarkadas, learned Senior Advocate appearing for
Applicant has taken this Court painstakingly through the orders passed
in the earlier round of litigation. He submits that the present
application is filed pursuant to the liberty granted by the Hon’ble
Court. He submits that the first application came to be dismissed on
14th October, 2011 on the finding that the application was not bona
fide and in public interest and lacked commercial morality for the
reason that the Applicants are seeking to acquire the land at throw
away price, the workers’ interest has not been taken care and the
scheme was not for revival of the textile business and hence, not in
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public interest. He submits that this view was reaffirmed by the
Hon’ble Division Bench, however, what is of significance is that at the
time of the first application, the object clause of the Memorandum of
Association of the Company did not include real estate activities and
there was opposition by some of the workers.
14. He would further submit that by the time the second application
was filed, all the claims of the workmen were successfully resolved and
they supported the stay of winding up order. He submits that the order
of learned Single Judge dated 21 st December, 2022 took note of
previous orders passed in the earlier application and noted that the
second application provided for development of the company’s
property and it is only after noting the satisfaction of the order dated
21st December, 2022 that the stay was granted by order of 9 th October,
2023. He submits that during the subsistence of the stay of the
winding-up proceedings on 14th May, 2024, an extraordinary general
meeting of the company was held for alteration of the memorandum
of understanding to expand the object of the company to undertake
the new business activities relating to real estate undertaking which
was approved by 99.85% shareholders voting in favor of alteration of
object of the company. He submits that by voting in favour of
amendment of MoA with 99.85% votes, the shareholders have
expressly indicated their clear approval of revival efforts of the
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Applicant and to engage in real estate business. He submits that in
the Appeal filed by Respondent Nos. 4 and 5, the Division Bench noted
that the earlier orders were not shown to the learned Single Judge and
granted liberty to file a fresh application after making complete
disclosure. He submits that the Special Leave Petition came to be
dismissed in view of the liberty granted by the Hon’ble Division Bench
and hence, the present application has been filed.
15. He submits the present Application has been filed in completely
changed circumstances as there is settlement of workers dues and
grant of additional benefits, full settlement of all creditors and
liabilities, approval of shareholder and the viability constraints on the
revival of the textile business. He submits that though the resolution
was opposed by one of the contesting shareholders, the same was
approved by majority.
16. Distinguishing the issues flagged in the earlier round of
litigation, he submits that the present plan serves larger public and
economic object including rehabilitation, welfare of the erstwhile
workers and sustainable redevelopment. He submits that the proposed
plan envisages settlement of all outstanding dues of the creditors
including unsecured and statutory creditors. He submits that there is
no sale of assets/reorganisation or transfer of share holding and the
company is merely brought out of winding up and made financially
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viable. He submits that there is no question of taking the assets of the
Company out of the Company as the Applicant is shareholder of the
Company. He submits that as opposed to public auction which would
result in sale of assets of the Company, the assets of the Company
would remain with the Company in present plan .
17. He would submit that one of the grounds for dismissal earlier
was non consideration of share holder’s interest which has been taken
care in the present application as the shareholders have approved the
resolution to amend the object clause of the company implying that
the shareholders are bound to not object to stay of winding up. He
submits that the Applicant owns 52% of the total equity shares and is
part of Shapporji Pallanji group, which is in the business of construction
and not textile which was one of the grounds for rejection by holding
that it is not shown that the textile manufacturing business is
prohibited or not permitted in Mumbai and that mere revival of
corporate existence of erstwhile company is not sufficient for
intervention of the Court. He submits that now the Applicant is in
possession of the technical feasibility report which confirms that
revival of textile business is not viable.
18. He would further submit that the decision of Meghal Homes (P)
Ltd. vs. Shree Niwas Girni K. K. Samiti1 relied upon in the earlier round
1 (2007) 7 SCC 753.
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of litigation is distinguishable on facts as in that case while the revival
application was pending, a MOU was executed between the majority
shareholders of the company therein and Developer under which the
Developer agreed to acquire the right of development of properties of
the company. It was pursuant to the MOU that the application was filed
in the Company Court to convene a meeting which was seen by the
Company Court as a pre-arrangement for sale of the company’s lands
and assets. He submits that in such factual scenario, the Hon’ble Apex
Court rejected the scheme by holding that shareholders were seeking
to bring the company outside winding-up to sell the land of the
company to the third-party. He submits that with the present revival
scheme, the land will continue to vest with the company and it is
proposed to be developed which will ultimately inure to the benefit of
current shareholders. He would further submit that for period of
almost 20 years, the liquidation process has been stalled yielding no
results for any stakeholders including the workmen.
19. He submits that even accepting applicability of Meghal Homes
(P) Ltd. vs. Shree Niwas Girni K.K. Samiti (supra) , the three-fold tests
laid down i.e. commercial morality, bona fide intent and public interest
has been satisfied in present case. He would submit that it has been
consistently held that whenever an option is available between revival
of the company and winding-up, the Courts must lean towards revival
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of the Company. He submits that revival of the Company does not
mean restoring the usual manufacturing of the business activities and
means best utilization of the assets including the vacant land. He
would further submit that the mortgage and the related funding
structure is fully disclosed in the Affidavit dated 27 th May, 2025 and the
mortgage was created subsequent to EOGM with 99.85% voting in
favor of the same. He submits that sum of Rs. 240 crores was paid for
revival of the company and to ensure that the company is not being
saddled with any additional or fresh liability.
20. He would submit that there were two valuations conducted in
2019, both of which were contested and the Official Liquidator’s
Report No. 56 of 2022 reiterates that the valuation could not be
conducted in view of various impediments and encroachments on the
property. He submits that the present application provides for full
settlement of the Company’s total liabilities of approximately Rs.
1,572.07 crores as on 22nd January, 2025 covering all classes of
creditors including secured, unsecured, statutory dues and co-
operative societies.
21. He submits that there is practical difficulty in public auction as all
attempts made to sell the asset have been unsuccessful by reason of
widespread encroachments and occupation by erstwhile workers. He
would submit that the land is encumbered and only equity of
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redemption can be sold which drastically reduces the potential of
commanding an attractive price in the public auction. He would further
submit that the Respondent Nos. 4 and 5’s motive is obstruction and
not value maximization and the objection is purely for personal gain He
submits that the valuation of Rs. 3,000 crores placed by Respondent
No 4 and 5 is misleading as the value of the land as per ready reckoner
rate is about Rs. 996 crores. In support, he relies upon the following
decisions:
Forbes and Co. Ltd. vs. Bipin Bagadia2
Meghal Homes (P) Ltd. vs. Shree Niwas Girni K. K.
Samiti (supra)Nutan Mills Employee Co-Op. vs. Official Liquidator
of Nutan Mills3Narayan Deorao Javle (Deceased) vs. Krishna and
Others4Gujrat Bottling Co. Ltd. vs. Coca Cola Company5
22. Mr. Khanna, Learned counsel for Respondent Nos. 4 and 5
submits that the land of the Company is extremely valuable which
admeasures about 48 acres and the OLR makes it clear that only 5 to
10 acres of the land is encroached. He submits that the OLR seeks
various reliefs for removal of encroachment and for valuation which is
2 2009(2) Mh. L.K. 897
3 Order dated 18.03.2026 passed in OLR No. 517 of 2015.
4 (2003) 9 SCC 401.
5 (2019) 212 Comp Cas 480.
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required to be allowed in the interest of all the stakeholders of the
Company. He submits that the land is valued upwards Rs. 3,000
crores and public auction ought to be conducted for value
maximisation.
23. He would further submit that the Applicant is trying to justify
the proposal on the basis of inflated and illegal claims. He submits that
as per the Applicant, the total liability of the company in 2025 is Rs.
1477.01 crores which differs from the figures presented by the
Applicant in Interim Application No. 3663 of 2022, which at that point
of time was Rs. 1103.09 crores and in 2011, was Rs. 366.89 crores. He
submits that the debt figure in 2025 is by reason of the inflated claim
of the Applicant and Respondent No. 2 from Rs. 280.44 crores as on
31st March, 2011 to Rs. 1225.3 crores in 2025. He would further submit
that as per the Official Liquidator’s Report in Company Application No.
243 of 2011, the admitted claim of Respondent No. 2 was adjudicated
at around Rs. 58 crores as per the admission of proof dated 27 th
February, 2006 and the IDBI had been paid a sum of about three and
half crore rupees as stated in the Official Liquidator’s Report. He
submits that the inflated claim of Applicant and Respondent No. 2 is by
addition of interest component at 16%, whereas the creditors are not
entitled to continue claiming interest after the date of winding-up till
the date of realization of payment as per Rule 179 of the Company
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Court Rules. He would further submit that there is no confirmation by
the Official Liquidator whether the Applicant and Respondent No 2’s
claim is correct despite the direction of the Hon’ble Apex Court.
24. He submits that the Applicant is not standing outside winding-
up since the debts of IDBI Bank and Bank of Baroda have been
adjudicated by the Official Liquidator at the relevant time. By reason
of illegal assignment post the winding up order, the Applicant cannot
claim to stand outside winding-up. He would submit that the order of
Debt Recovery Tribunal permitting the Applicant to be substituted in
Recovery Certificate does not create any equity in favor of Applicant
and the Applicant cannot claim to be a secured creditor for any
purpose. He would further submit that the Assignment Deeds relied
upon by the Applicant are against the guidelines dated 13 th July, 2005
issued by the Reserve Bank of India under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 and as no charge has ever been registered qua the
security with the Registrar of the Companies and hence, the charge is
void under Section 125 of the Companies Act, 1956. He submits that all
these factors are required to be adjudicated as directed by the Hon’ble
Apex Court in its order dated 22nd January, 2025.
25. He would further submit that even without the Official
Liquidator making an attempt to clear encroachment and without
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facing a public auction, the Applicant along with Respondent No. 2
wants to take the benefit of land and its immense potential to carry
out real estate business. He submits that the proposal put forth by the
Applicant is only to obliquely take the valuable assets of the company
without participating in public auction which would ensure maximum
value for the land which is more than 6 million sq. feet worth of
development potential.
26. He would further submit that the argument that only the right of
redemption can be sold in public auction and not the land cannot be
accepted as when the land is sold, it will be sold on as is where is basis.
He would further submit that once the land is sold, the waterfall
mechanism under Section 529A of the Companies Act would apply and
considering that the claim of the Applicant and the Respondent No. 2
are inflated and contrary to law, there is no question of nothing been
left for other creditors and contributories of the company. He submits
that the said position nullifies the argument of the Applicant of fire
sale taking place. He submits that the public auction would ensure fair
play and transparency and is a preferred route to ensure value
maximization of the assets particularly, when the assets are custodia
legis. He would further point out the orders dated 17 th September,
2003 passed by this Court to demonstrate that the benefits were
received upon public auction being conducted.
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27. He has taken this Court in detail through the earlier orders and
would contend that identical scheme of revival was found to be illegal.
He submits that the findings of the Hon’ble Division Bench in the order
dated 22nd January, 2025 are binding on this Court and in any event,
there is no case made out for dispelling those findings. He submits that
under Section 466 of the Companies Act, it is the resumption of the
business which is contemplated which is reaffirmed in the judgment of
Meghal Homes (P) Ltd. (supra) and followed by this Court in the earlier
round of litigation. He submits that nothing prevents the Applicant
from starting the business of textile manufacturing outside Mumbai,
which would ensure revival of business in consonance with the
principles of Section 466.
28. He would submit that there is no change of circumstances
between 2011 and 2025 for considering the present scheme. He would
submit that only purported change of circumstances is the EOGM, the
feasibility report of independent agency, the settlement of workmen
dues and creditor’s liabilities. He submits that EOGM was held after the
learned Single Judge’s order dated 9 th October, 2023 and before the
same was set aside by the Hon’ble Division Bench which found the
order of winding-up was obtained by suppressing the order of this
Court. He submits that as the learned Single Judge’s order has been set
aside, the doctrine of restitution or principles analogous thereto would
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apply and therefore, the Applicants cannot rely upon the EOGM held in
the interregnum. He would submit that in any event, the EOGM does
not constitute change in circumstances as out of 54% shareholders
who voted in favor of change in object clause, 52.25% were of the
Applicant and the Respondent No. 2 themselves. He would submit that
the shareholders have not approved the Applicant’s revival scheme in
the EOGM. He points out to the order of the Hon’ble Division Bench
dated 23rd August, 2013 holding that the correct approach for the
Applicant is an application under Section 391 of the Companies Act to
enable the members of the company to consider and vote on the
revival scheme. He submits that the Hon’ble Division Bench has further
held that in event after the scheme is approved by shareholders in the
meeting held under Section 391 of the Companies Act, the Company
Court would still have to consider the aspect of morality and public
interest in order to bind the dissenting minority while sanctioning the
scheme. He submits that the technical feasibility report does not
constitute change in circumstances as in the first round of litigation in
2011, the claim of the Applicant was identical that it is not practicable
and feasible to carry on such business. He submits that there is
difference between the revival not being economically feasible and
complete prohibition on revival.
29. He would further submit that no equities can be claimed on the
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ground that the Applicant has paid Rs. 240 crores which was also raised
by mortgaging the land of the company. He would further submit that
the consequences of the stay of winding-up is required to be
considered as the Applicant and Respondent No. 2 have only deferred
the recovery of the dues of the secured creditors and that the inflated
and purported liability will then be recovered from the company once
it is out of liquidation. He would further submit that the Hon’ble
Division Bench in its judgment dated 22 nd January, 2025 has held that
the motive of the Applicant was to avoid participating in the public
auction and the mere fact of pumping money could not persuade the
Company Court to grant any discretionary relief. He would further
submit that purported scheme under Section 466 of the Companies Act
is only an attempt to take over the land of the company and to enter
into the real estate development business, a business which is never
carried by the company (in liquidation).
30. He would further submit that in the case of Meghal Homes (P)
Ltd. (supra) decision, the Hon’ble Apex Court negated the argument
that Section 391 is a standalone provision and held that Section 391 to
Section 394A and Section 466 of the Act are required to be reconciled
and test of Section 466 of the Act was made applicable to Section 391
of the Act in that case. He submits that the test of commercial
morality, public interest and the intention to revive are the applicable
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tests which have not been satisfied in the present case. In support, he
relies upon the following decisions :
Pravin S. Shah vs. Rashtriya Mill Mazdoor Sangh6
Indian Link Chain Mfrs Ltd.7
Vinay Syay vs. State of Punjab8
Suzuki Parasampuri Suitings Pvt. Ltd. vs. Official
Liquidator Mahendra Petrochemicals Ltd. (in
liquidation)9Gorakhpur Steels and Metals vs. Presiding Officer,
DRT10Pravin S. Shah vs. Rashtriya Mill Mazdoor Sangh11
ARC Holding Ltd vs. Rishra Steel Ltd.12
Shyam Rastogi vs. Nona Sona Exports13
Sonajuli Tea and Industries vs. Ashkaran
Chattarsingh14Meghal Homes (P) Ltd. vs. Shree Niwas Girni K. K.
Samiti (supra)
31. In rejoinder, Mr. Dwarkadas would submit that the revival of
textile business is not feasible and the object clause is amended to
6 2017 SCC OnLine All 3009.
7 2009 (2) Mh. L. J. 897.
8 2010 SCC OnLine Cal 1677.
9 1984 SCC OnLine Del 66.
10 85CWN557.
11 (2020) 8 SCC 129.
12 Company Application No. 1202 of 2008, decided on 07th August, 2008.
13 SLP No. 760 of 2014, decided on 27th January, 2014.
14 CA No. 342 of 2013, decided on 11th April, 2014.
15 SLP No. 1387 of 2014, decided on 29th August, 2014.
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include real estate development. He submits that the explanatory
statement to the EoGM mentions about the intention to undertake
new business activity relating to real estate development which
constitutes approval to the revival scheme by the share holders. He
submits that as the proposal is not for sale of assets of the Company
for which scheme would have to be propounded, Section 391 -392 of
Companies Act has no application. He submits that the argument of
Respondent Nos. 4 and 5 about the sale by public auction is
fundamentally flawed as the option of public auction cannot be
treated as an alternative to the Applicant’s proposal which seeks to
satisfy the dues of all the stakeholders including the creditors, workers
and statutory authorities. He submits that by allowing the company to
develop the land itself, the development profits will accrue to
company and consequently to all the shareholders which is far more
superior method of maximization as compared to that of uncertain
public auction. He would further submit that all efforts by the Official
Liquidator and High Powered Committee have been unsuccessful and
there is no auction which has been conducted by Official Liquidator for
over 20 years.
32. He would further submit that the question of interest applied by
the Applicant as secured security is extraneous to the adjudication of
the present application and that determination is within the remit of
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Official Liquidator at the appropriate stage. He would submit that the
Applicant’s claim is based on the recovery certificate of DRT where the
interest is awarded at 16% p.a. and irrespective of whether the claim is
pursued by the Applicant or the assignors, the underlying debts
subsists and remains recoverable. He submits that the Applicant is a
secured creditor who stands outside winding up and it is well-settled
that in such circumstances, the ceiling on payment of interest under
Rule 179 has no application. He would further submit that DRT vide
order dated 19th May, 2014 has recognized the assignment of debt of
the Recovery Certificate and replaced the applicant as creditor in the
DRT proceedings which assignment has attained finality. He submits
that the present application is filed in dual capacity as a secured
creditor as well as the shareholder of the company.
33. He would further submit that the reliance on the earlier orders is
misplaced as there is material change in circumstances. He would
further submit that the resolution passed in EOGM is not invalid
because there was no stay on the order dated 9 th October, 2023. He
submits that the Hon’ble Division Bench had only noticed the EOGM as
held and did not give any finding on whether it was a relevant
subsequent event or not. He submits that the application being a fresh
application under Section 466 is expressly permitted by the earlier
orders. He submits that the principle of restitution applies where any
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benefits have been derived by doing any wrong to another or any loss
has been caused to the person and the resolution is validly passed by
the shareholders cannot constitute a benefit. He would further submit
that the Respondent Nos. 4 and 5 have failed to raise any substantial
grounds on merits of the Applicant’s revival plan.
34. Mr. Carvalho, learned counsel appearing for the Official
Liquidator would submit that the Official Liquidator has taken out the
Official Liquidator’s Report No. 39 of 2025 inter alia seeking ratification
of the security agency for valuation of the properties of the companies,
making payments and further directions. He has taken this Court
through the OLR to demonstrate the steps taken by the Official
Liquidator in winding up process. He submits that the amount which
has been deposited by the Applicant was Rs. 240 crores out of which
the creditors/workers were paid Rs.16,900,87,548/-. He submits that
out of 2910 creditors, 2071 creditors have been paid. He submits that
the balance amount lying with the Official Liquidator is Rs.
80,35,43,179/- and apart from the Applicant’s deposit, there is an
additional amount of Rs. 20,30,242/-. He would submit that by order of
1st July, 2016, this Court has directed the land of mill premises to be
surveyed and valued and Corporation was permitted to take
appropriate steps in respect of dilapidated structures standing on the
main land. He would further submit that the mill land is occupied by
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buildings/structures and it is not clear as to how these entities have
acquired title therein. He would further submit that by order of 13 th
November, 2017, this Court noted that the surveyor and valuer have
not been able to proceed further due to impediment at the site and
the Court permitted the valuation of the rest of the mill land except
the two survey numbers for which clarification was sought. He submits
that in the meantime, the movable properties of the company was sold
and on 21st November, 2018, the order was passed by this Court
directing the valuer to submit fresh valuation report after considering
the DCPR, 2034 which report was submitted on 6 th February, 2019. By
order of 10th April, 2019, this Court appointed the Architect to inspect
the condition of the structure standing on the mill premises and to
submit a necessary report which was submitted on 24 th April, 2019. He
submits that on 2nd January, 2020, the order was passed by this Court
regarding the completion of survey and valuation, however, as the
implication of the DCPR, 2034 was to be considered, the Interim
Application came to be disposed of with the directions to the Official
Liquidator to submit a fresh report after considering DCPR, 2034 and
to seek further directions with respect to disposal of the mill land. He
submits that 49 erstwhile workers have objected to the payment of
settlement amount and the meeting was convened by the Official
Liquidator who had filed a separate Interim Application out of which 45
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applications are dismissed as withdrawn and four applications are
pending. He submits that in 2024, the company created a charge in
respect of mill premises in favor of IDBI Trusteeship Services Ltd. for
the sum of Rs. 380 crores.
35. He submits that the Official Liquidator has taken various steps
towards taking charge and liquidating the assets of the parties since
the passing of winding-up order. He submits that out of four
immovable properties, one property i.e. Andheri flat was sold with the
permission of the Court and one tenanted property was handed back
to the owner pursuant to the order of this Court. He would submit that
insofar as the remaining two properties are concerned, the Official
Liquidator has sought to take several steps towards the preservation
and sale of the property. In respect of the mill lands, Mr. Carvalho
would contend that the Official Liquidator upon taking charge of the
mill premises discovered that the land was encroached upon and
occupied by several structures, however, the encroachment could not
be fully removed. He submits that some of the structures standing on
the mill lands are in dangerous dilapidated condition and this Court
had directed the Corporation to take necessary steps in accordance
with law.
36. He submits that in the meanwhile, there was an application
moved seeking stay of winding-up which traveled right up to the Apex
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Court and after rejection by the Hon’ble Apex Court, by present OLR
No. 39 of 2025, the Official Liquidator has sought directions to carry
out the valuation of the property with a view to proceed with the
same. He would further submit that the Applicant is a secured creditor
standing outside winding up as assignee under Recovery Certificate
dated 26th February, 2025 issued by DRT and as on 27 th January, 2025,
the Applicant claims to be entitled to outstanding dues of Rs. 985,05,
82,364/-. He submits that under Section 19 of the Recovery of Debts
and Bankruptcy Act, 1993 where a recovery certificate is issued in
respect of company (in liquidation), the secured assets are to be
distributed by DRT and not by the Company Court in a manner under
Section 529A of the Companies Act, 1956 in favor of secured creditor
subject to payment of workmen’s portion in such secured assets. He
submits that Respondent No. 2 is a secured creditor who has
participated in the winding-up process and has obtained adjudication
of its claim from the Official Liquidator for a total sum of Rs.
57,39,17,238/-. He submits that as on 27 th January, 2025, the
Respondent No. 2 claims to be entitled to outstanding claim of Rs.
115,75,77,048/- including simple interest at the rate of 4% p.a. in terms
of Rule 179 of Company Court Rules. He submits that the claim to
interest would be subject to availability of surplus remaining and
capped at the rate of 4% on the admitted amount from the date of
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winding up order to declaration of final dividend. He submits that in
view of DCPR, 2034, the Company has become entitled to valuable
right in the form of increased floor space index of the mill land which is
possible for the company to utilize, if revived. He submits that the
Official Liquidator would adhere to the orders of this Court and in
event, the application is refused, the Official Liquidator is ready and
willing to proceed with taking further steps for valuation and sale of
the properties of the company. In support, he relies upon the following
decisions :
Associate Engineers vs. Swadeshi Mills Company16
Rashtriya Mill Mazdoor Sangh vs. The Official
Liquidator17Kaushike Dave and Others vs. B.I.F.R.18
Forbes and Co. Ltd. vs. Official Liquidator of
Swadeshi Mills19Kaushik Dave vs. Official Liquidator20
37. Mr. Tulzapurkar, learned Senior Advocate appearing for
Respondent No. 2 questions the locus of Respondent Nos. 4 and 5 to
object to the relief sought in the present Application. He submits that
Respondent Nos. 4 and 5 are not creditors of the company having a
16 CA No. 342 of 2013, order dated 7th July, 2016.
17 2005 SCC OnLine Bom 338.
18 (1985) 57 Comp Cas 85.
19 (1998) 94 Comp Cas 723.
20 2017 SCC OnLine Kar 4817.
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right to participate in the proceeds of winding up. He submits that the
Applicant and Respondent No. 2 together hold approximately 52% of
the Company’s total shares and are its only secured creditors. He
submits that the purpose of winding up proceedings is to ensure
equitable distribution of the proceeds from the sale of the assets of
the company (in liquidation) to its creditors and it is the interest of the
creditors, which is required to be protected. He submits that the
shareholder is not to be equated with the creditor when it comes to
winding-up and the distribution of surplus to shareholders is not in
discharge of any debt and a shareholder cannot dictate the course of
winding-up at the expenses of interest of creditors. He would further
submit that in the EOGM, the majority shareholders have approved the
amendment to the Memorandum of Association, which supports the
application for revival and cannot be disturbed by persons holding
minuscule shareholding. He would further submit that Respondent
Nos. 4 and 5 have vested interest in ensuring that the company
remains in winding up and is not revived. He submits that an
application was filed being Interim Application No. 1110 of 2020
seeking permission of Company Court under Section 536(2) of the
Companies Act, 1956 for recording transfer of 2,800 more equity
shares to Respondent No. 4 which the Company Court held did not
appear to be bona fide in nature. He would further submit that no
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stakeholder has objected except the Respondent Nos. 4 and 5. He
submits that the Applicant has disclosed the changed circumstances
for filing present Application. He submits that the revival of the
company is the only legally tenable outcome whereas continuation of
winding-up would amount to exercising futility and institutionalized
value destruction. He submits that for over two decades, the winding-
up has remained inconclusive and the Official Liquidator has itself
acknowledged the practical impossibility of effecting meaningful sale.
He submits that the present revival plan results in complete discharge
of all liabilities, settlement of worker’s claim and lawful redevelopment
in accordance with DCPR, 2034. He would further submit that the
statutory scheme does not favor auction of these assets and
dissolution. He would further submit that the shareholders of the
company have approved its revival which is a decision taken in
commercial wisdom and is required to be taken into consideration for
deciding the present Application. In support, he relies upon the
following decisions :
Shree Niwas Girni Kamgar Kruti Samiti vs.
Rangnath Basudev Somani21Sudarshan Chits (India) Ltd. vs. Sukumaran Pillai
and Others22
21 (1981) 51 Com Cas 20.
22 SLP No. 2705 of 2025 decided on 31.01.2025 decided by Hon’ble Supreme Court.
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Wearwell Cycle Co. (I) Ltd. (in liquidation)23
Government of Karnataka vs. NGEF Limited24
Vasant Investment Corp. Ltd. vs. Official
Liquidator, Colaba Land and Mill Co. Ltd.25
38. Mr. Ardeshir, learned Senior Advocate appearing for Respondent
No. 3-recognized union of workers submits that the Agreement of
settlement entered into with the Applicant is far superior than what
can be expected to be received through continuation of winding-up
proceedings. He submits that under the settlement agreement, the
badli workers are treated at par with permanent workers. He would
further submit that depending upon outcome of this application, the
ex-worker would be entitled to more through the agreement for
settlement rather than through liquidation. He would further submit
that the legal heirs of the workers would be entitled to the benefits
like retrenchment under the agreement of settlement which is not
available under the liquidation process. He submits that the settlement
agreement sets out the timelines for making the payment whereas
there is no certainty as to receiving the payment considering the
Official Liquidator has not been able to adjudicate all the claims yet. He
submits that upon the Company being brought out of liquidation,
approximately 800 ex-workers residing in chawl would get housing and
23 (2001) 104 Comp Cas 439.
24 (2021) 17 SCC 626.
25 Appeal No. 183 of 1995, decided by Gujarat High Court on 3rd March, 1995.
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remaining workers would be entitled to subsidized housing. He
submits that based on the representation by the union and by
government resolution of 28th September, 2001, the Government of
Maharashtra constituted a high-powered committee to initiate action
for payment of workers and dues in Banks/financial institutions which
were empowered by this Court to sell the assets of the company
pursuant to which the entire plant and machinery was auctioned
however, the committee was unable to sell the lands of the company.
He submits that no objections has been raised by any other
shareholders, creditors, workmen and stakeholders except the
minuscule faction of shareholders who hold insignificant stake in the
company which is the luxury dispute by Respondent Nos. 4 and 5.
REASONS AND ANALYSIS :
39. The present application invokes the power of this Court under
Section 466 of Companies Act, 1956 [for short “Companies Act“]
seeking stay on the winding up order dated 5th September, 2005
passed by this Court. Section 466 of Companies Act reads as under:
“466. POWER OF TRIBUNAL TO STAY WINDING UP :
(1) The Tribunal may at any time after making a
winding up order, on the application either of the
Official Liquidator or of any creditor or contributory,
and on proof to the satisfaction of the Tribunal that
all proceedings in relation to the winding up ought to
be stayed, make an order staying the proceedings,
either altogether or for a limited time, on such termsSairaj 33 of 76
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(2) On any application under this section, the Tribunal
may, before making an order, require the Official
Liquidator to furnish to the Tribunal a report with
respect to any facts or matters which are in his
opinion relevant to the application.
(3) A copy of every order made under this section
shall forthwith be forwarded by the company, or
otherwise as may be prescribed, to the Registrar, who
shall make a minute of the order in his books relating
to the company.”
40. Section 466 of the Companies Act permits the filing of
application by the Official Liquidator, creditor or contributory for
seeking stay of winding up. The statute thus permits a contributory to
seek stay of winding up order and in absence of any prohibition, there
is no reason as to why the contributory cannot be permitted to
contest the application seeking stay of winding up order. It is well
settled that upon winding up of company, the members are entitled to
a share in the distribution of the assets after the liabilities have been
discharged, which gives right to the contributory to oppose the
application for stay of winding up, if the application prejudices his
rights in the distribution of assets. This is precisely the grievance of the
Respondent Nos. 4 and 5 that value maximisation can be achieved
through public auction. The minuscule share-holding of the
Respondent Nos. 4 and 5 will not affect the rights of Respondent Nos.
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4 and 5 to contest the proceedings.
41. Before adverting to the facts, it would be apposite to have brief
overlook at the statutory scheme of winding up. The statutory
provisions governing winding up by Court is set out in Chapter II of the
Companies Act. Upon passing of an order for winding up and
appointment of official liquidator, the custody and control of all the
property, effects and actionable claims to which the company is
entitled is taken over by the Official Liquidator (OL), who then has the
powers set out in Section 457 of Companies Act to do all acts necessary
for winding up the affairs of the company and distributing its assets
including the power to sell the assets of the company by public auction
or private contract. The general powers of the Court includes power to
direct the contributories to pay any money due from him and adjust
the rights of the contributories among themselves and distribute any
surplus among the persons entitled thereto.
42. The waterfall mechanism provided by the enactment governs
the order of distribution of sale proceeds. Section 520 provides for
payment of liquidation costs subject to the rights of the secured
creditors, if any. Section 529 provides for security of secured creditor
to be subject to pari passu charge in favour of workmen to the extent
of workmen’s portion therein. Where a secured creditor stands outside
winding up and opts to realise his security, the liquidator shall be
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entitled to enforce the workmen’s charge. Section 529A provides for
overriding preferential payment to the workmen’s dues and debts due
to secured creditors to the extent such debts rank under Section
529(1)(c) pari passu with such dues. Section 530 provides for the order
of preferential payments subject to Section 529A. The debts shall be
paid in full, unless the assets are insufficient to meet them in which
case they shall abate in equal proportion.
43. Section 466 of Companies Act enables the Tribunal to stay the
winding up of company upon arriving at a satisfaction that all
proceedings relating to winding up ought to be stayed. The parameters
for exercising power under Section 466 of Companies Act was laid
down by the Hon’ble Apex Court in the case of Meghal Homes (supra)
though in the context of Section 391 to 394 of Companies Act. It would
be relevant to consider the decision in some detail.
Meghal Homes (P) Ltd. (supra) judgment –
44. In respect of the Respondent-textile mill therein, the winding-up
order was passed in 1984 and charge was taken by the Official
Liquidator. In 1994 Court order was passed directing the Official
Liquidator to issue public notice inviting offers for revival of the textile
mills and absorption of the workmen and to purchase the assets of the
company. At that stage, a contributory filed company application
seeking direction of the Company Court for holding a meeting of
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contributories and other interested persons to consider a scheme
proposed for revival of the company which was permitted to be
convened by the Company Court. The order was challenged by the
worker’s union and the parties who had submitted their offers in
response to the public notice. The meeting was held as directed by the
Company Court and the scheme was approved by the workers,
creditors, contributories and an application for sanctioning the scheme
was also filed. In the meantime, in 1995, the Division Bench allowed the
Appeal and set aside the direction for convening a meeting to consider
the scheme proposed. The Special Leave Petition filed against the
order was dismissed. In that case, the State Bank of India Capital
Markets limited was assigned the task of preparing the viability report
which reported the unviability of revival of weaving and processing
section of the mill and opined that it is not possible to restart the
entire mill. In 1998, the new industrial location policy of the
Government of Maharashtra became operative and applied to all
industries in Mumbai Metropolitan region excluding the cotton textile
industries which did not restrict the restarting of the manufacturing
activities of the Mill in question.
45. In the year 2003, Memorandum of Understanding was executed
between the shareholders, one Somani Group who had acquired the
shares of other majority shareholders and Lodha Builders Private
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Limited-developer. Under that Agreement, the developer, in
consideration of acquiring the development rights of the landed
properties of the Mill, agreed to pay certain consideration and hand
over certain constructed area. Based on the Agreement, the majority
shareholder filed Company Application propounding a scheme and
seeking direction from the Company Court for convening the meeting
to consider the amended scheme. The amendment to the earlier
scheme envisaged the development and transfer of the Mill’s
properties to the developer for revival of the Mill. The scheme also
provided that after discharging the liabilities of the creditors, if extra
funds are available with the textile mill, then the textile mill will start a
viable industry in any part of Maharashtra and employment will be
generated.
46. The amended scheme was approved by the stake holders. The
sanction to the scheme was declined by the Company Court holding
that the scheme was in substance, a disposal of the company’s assets
which then vested in the Official Liquidator. As against the order of
Company Court, the Division Bench allowed the Appeal, which was
carried upto the Hon’ble Apex Court by the party who had submitted
offers pursuant to the public notice.
47. The Hon’ble Apex Court noted that the issue for consideration is
whether the compromise which would fall under Section 391 of the
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Companies Act could be accepted by the Court without reference to
the fact that it is the Company (in liquidation) and without considering
that whether the compromise proposed as intended to take the
company out of liquidation contemplates the revival of the company
and whether it puts forward a proposal for revival and whether such a
proposal satisfies the element of public interest and commercial
morality, the elements required to be satisfied for the Court to stop
the winding-up proceedings under Section 466 of the Act.
48. The Hon’ble Apex Court considered the viability report of the
State Bank of India (Capital Markets), the modified proposal of
settlement of liabilities of the creditors and others, development
agreement between the builder and textile mill, payment of dues of
workers and creditors, the setting up of school/industrial unit for
benefit of workers, setting up of spinning/garment unit in mill
premises and unit in rural Maharashtra. The Hon’ble Apex Court in the
context of Section 391 held that it is not a scheme for revival of the
company as it is more in realm of disposal of assets of Company (in
liquidation) no doubt with a view to pay of all the creditors, debenture
holders and workers from the funds generated from the sale of lands.
49. The Hon’ble Court held in paragraph 47 and 51 as under:
“47. When a company is ordered to be wound up, the
assets of it are put in possession of Official Liquidator.
The assets becomes custodia legis. The follow-up, in theSairaj 39 of 76
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the assets of the company by the Official Liquidator and
distribution of the proceeds to creditors, workers and
contributories of the company ultimately resulting in
death of the company and order under Section 481 of
the Act being passed. The Apex Court held that nothing
stands in the way of Company Court before the ultimate
step is taken or before the assets are disposed of to
accept the scheme or proposal for revival of the
company. In that context, the Court has necessarily to
see whether the scheme contemplates revival of
business of the company, makes provision for paying of
creditors or for satisfying their claims as agreed of by
them and for meeting the liability of the workers in
terms of Section 529 and Section 529A of the Act. Of
course, the court has to see to the bona fide of the
scheme and to ensure that what is put forward is not the
ruse to dispose of the assets of the company (in
liquidation).”
“51. We see no difficulty in reconciling the need to
satisfy the requirement of both Sections 391 to 394A and
466 of the Companies Act while dealing with a company,
which has been ordered to be wound up. In other words,
we find no incongruity in looking into aspects of public
interest, commercial morality and bona fide intention to
revive a company while considering whether a
compromise or arrangement put forward in terms of
Section 391 of the Companies Act should be accepted or
not. We see no conflict in applying both the provisions
and in harmoniously constructing them and in finding
that while the court will not sit in appeal over the
commercial wisdom of the shareholders of a company, it
will certainly consider whether there is genuine attempt
to revive the company that has gone into liquidation and
whether revival is in public interest and and confirms to
commercial morality”.
50. The Hon’ble Apex Court reconciled the provisions of Section 391
to 394 of Companies Act and Section 466 while dealing with the
scheme of revival of company ordered to be wound up and applied the
triple tests of bonafides, commercial morality and public interest.
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51. Though it is sought to be contended by Mr. Dwarkadas that the
decision of Meghal Homes (P) Ltd. (supra) is rendered in different
factual scenario, what applies and is binding upon this Court is the
tests to be applied while adjudicating an application under Section 466.
52. The previous applications were dismissed by the Courts by
applying the principles laid down in of Meghal Homes (P) Ltd. (supra).
Rival contentions are advanced as regards the applicability of the said
decision. It will be necessary to advert to the earlier orders of this
Court which had applied the tests of Meghal Homes (P) Ltd. (supra)
while rejecting the prior applications.
FIRST APPLICATION UNDER SECTION 466:
53. The Applicant jointly with Respondent No. 2 filed Company
Application No. 243 of 2011 seeking identical relief of permanent stay
of winding up. The liabilities of the company as on 31 st March, 2011 was
stated to be approximately Rs. 375.33 crores out of which Rs. 280.90
crores was towards the dues of Applicant and Respondent No 2, which
they agreed to defer. As regards other claims, it was stated as under:
(a) Claims of workers affiliated to Rashtryia Mill Mazdoor Sangh – R-3
herein and Mumbai Mazdoor Sabha:
– 75% of the claim of around 2800 workers has been paid of by
the OL out of sale proceeds of machinery of the company.
– MOU of 2010 has been entered into by which Rs 30,000/- will be
paid to each worker aggregating to Rs 74,42,97,519/-.
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– 37 workers who had opted for VRS would be paid Rs
20,98,611/-.
– 18 workers who had retired would be paid Rs 3,10,238/-.
– 28 works of Mumbai Mazdoor Sabha would be paid Rs
65,73,086/- as per MOU dated 24th January, 2011.
(b) Claims towards co-operative societies :
– 10 co-operative societies/bodies of workers/employees would
be paid Rs 2,57,98,113/-.
(c ) Claims towards statutory bodies:
– Rs 3,76,04,014/- would be paid and ESI and Profession Tax
Department has already been paid Rs 1,99,83,919/- and Rs
70,07,427/-.
(d) Claims of secured creditors i.e. the Applicant and Respondent No 2
of Rs 193,85,74,592/- are agreed to be deferred and would be
received after stay of winding up as agreed mutually between the
Applicant and the Company.
(e) Claims of 146 unsecured creditors Rs 4,12,18,801/- out of which 70
unsecured creditors have assigned their claims to Applicant No 2. The
Applicant and two other companies being part of Shapoorji Pallonji
group have agreed to defer amount or Rs. 86,59,94,497/-.
54. The Applicant undertook to deposit Rs. 86 cores with OL and
additional amount, if directed, for payment to workers, statutory
creditors and unsecured creditors and further amount of Rs. 40 crores
for carrying on business by the Company upon stay of winding up, to be
treated as loan by the Applicant to the Company and will have to be
repaid by the Company with interest and on mutually agreed terms. As
regards revival of the Company, it was proposed that the Applicants
will diversify the business of Company in real estate business.
ORDER DATED 14th OCTOBER, 2011 PASSED ON THE FIRST
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APPLICATION :
55. One of the submissions canvassed on behalf of Applicants on
the objection raised in that case that the Applicants want to take over
the company and start some other business was that if the object
clause in the memorandum does not include proposed business,
subject to modification or amendment, the object clause would be
amended. The application was opposed by 748 workers. Pertinently,
the submission canvassed by the Applicants therein i.e. the Applicant
and Respondent No 2 are entitled to interest in terms of Rule 179 of
Companies Court Rules, 1959, which is at variance with the Applicant’s
stand in the present application.
56. The Learned Single Judge applied the settled principles that the
application should be bona fide, mere consent of creditors is not
enough, commercial morality and that jurisdiction of stay can be used
only to allow resumption of business of company in public interest. It
held that the Court will refuse an order if there is evidence of
misfeasance or irregularity applying the decision of Meghal Homes
(supra).
57. The Learned Single Judge upon perusal of paragraph 7 of the
Affidavit in that case observed that the intent was that the applicants
do not desire to revive the business of the company (in liquidation) by
developing part of its properties or portions of the land, but desire to
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take over the said lands for exploitation in the real estate market.
Paragraph 7 of the Affidavit which led to the finding and is reproduced
in the order of Learned Single Judge reads as under:
“7. In recent years, the Government of Maharashtra has
initiated various activities for the promotion and facilitation
of development of mill lands in Mumbai. Increasing the
availability of housing has also been a thrust area. The said
initiatives, alongwith the available immovable properties of
the Company together, offer a favourable platform for the
company to undertake real estate development operation.
Though the company was in textile business prior to winding
up, due to disposal of all the stock in trade and entire plant
and machines, it is no longer viable to run the business as
manufacturer of textiles. In the present circumstances, in
Mumbai even otherwise a textile mill is not viable. The
applicants are part of Shapoorji Pallonji Group, Shapoorji
Pallonji Group has expertise in the real estate business and
therefore, intends to enable the company to undertake real
estate development applicant No 2 has shown its willingness
to bring in funds to meet all the legitimate liabilities of the
company subject to the order of winding up being
permanently stayed by this Court as sought by the applicants
herein.”
(Emphasis supplied)
58. The proposal therein also intended to enable the company to
undertake real estate development by infusing funds, which is
identical proposal propounded herein. The Learned Single Judge
considered this proposal in paragraph 41 and 42 as under:
“41. The applicants have stated in the affidavit in support
that the company in liquidation is a Public Limited
Company incorporated and registered under the
Companies Act VI of 1882 of the Legislative Council of
India. Its shareholding and activities are set out and
admittedly the company was operating composite textile
mills having spinning, weaving and processing sections
for the manufacture of cotton, synthetics and non-woven
fabrics. Although the company ran into rough weather,
what has been placed for this Court’s consideration andSairaj 44 of 76
IA-6953-2025 (f).docseeking reliefs in its equitable and discretionary
jurisdiction is, that Government of Maharashtra has
initiated various measures for promotion and facilitation
of development of mill lands in Mumbai. It is projected
that in accordance therewith, the availability of houses
has also been a thrust area. The initiative alongwith
available immovable properties of the company together,
offer a favourable platform for the company to
undertake real estate development operation. Now, if
para 7 of the affidavit in support, which is reproduced
herein above is carefully perused, it is apparent that the
applicants do not desire to revive the business of the
company in liquidation by developing part of its
properties or portions of its lands, but desire to take over
the said lands for exploitation in the real estate market. It
is clearly their motive that these lands should be taken
over without offering the market price, but via this
application so that once the permanent stay of winding
up is obtained or granted, that would mean that the
company’s prime assets and properties can no longer be
controlled by the Court. They would develop these lands
by constructing buildings and sell off the units therein
and earn profits.
42. However, the desire to cash on the lands with a view
to fully exploit their potential is not matched with the
same approach as far as the creditors of the company. By
not reviving the company after taking it out of winding up
shows that the applicants are primarily concerned with
the benefits attached to these lands. By exploiting and
utilising them to their advantage, the applicants are not
agreeable to the Liquidator and the Court controlling
their actions in interest of all creditors and general public.
The business opportunities on account of spiraling prices
in the Real Estate Market is the only attraction for the
applicants. The proceeds and gains from such
opportunities ought to have been shared by them with all
However, that is not their intent, is clear from their stand.
If these lands are sold by the Official Liquidator under the
supervision of this Court and at open, fair and
transparent public auction the applicants may not stand
any chance and hence they desire to obtain the lands at a
throwaway price by a back-door method. That is the sole
intent in making this application. By invoking sympathy of
some creditors and stating that the monies to meet the
claims of the workers would be brought in immediately,Sairaj 45 of 76
IA-6953-2025 (f).docwhat the applicants are seeking to do is to take away
entire proceedings in winding up from the supervision
and control of this Court. They may make give or seek
some concessions here and there. However, their object
is not to run the business of the company in liquidation.
They have not brought anything on record by which it
could be conclusively held that textile manufacturing
business is altogether prohibited or not permitted in the
Island city. In fact, if the affidavit in support is perused
carefully, it is evident that the Shapoorji Pallonji Group is
interested in the lands of this textile company and if they
have to obtain the same at public auction or by bidding at
a sale of this land and assets of the company in
liquidation under the aegis of the Liquidator and
pursuant to the sanction of this Court, they may not be
able to acquire these lands. Thus, to avoid participation at
a public auction and at a sale which will be conducted in a
transparent and fair manner, that the application has
been filed. The applicants have not come out with a
positive case that business of the company in liquidation
cannot be revived at all. They do not say that the textile
business cannot be carried on or is totally prohibited.
They claim that it is not practicable and feasible to carry
on such business. However, it is their perception. The
Liquidator has not come forward with any conclusive or
decisive report on this aspect. In such circumstances, if all
the above tests and principles are applied, it is evident
that this company application is filed for seeking a stay of
the winding up not for revival of the company’s business
or to smoothen the process of liquidation and winding up,
but to take over the company itself in an indirect and
oblique manner. There is substance in the objection of
Ms.Cox that this is a take over of the company without
recourse to the provisions in law enabling such take over
and particularly sections 391, 392 to 394 of the Act. To by
pass and avoid compliance with such provisions, that this
application is filed. Once such is the motive, then, the
enormity of the funds, the applicants are willing to pump
in, the schemes or arrangements of settlement of the
dues of creditors, cannot persuade this Court to grant any
discretionary relief to them and prevent the Liquidator
from proceeding to wind up the company in accordance
with law. If ultimately it is impossible to revive the
company, then, it is better that the Liquidator carries on
its affairs till the dissolution of the company. It is only
through the mechanism and participation of theSairaj 46 of 76
IA-6953-2025 (f).docLiquidator, that the Court can ensure settlement of
claims of the secured and unsecured creditors in
accordance with law.”
59. It was not the absence of the object clause in the Memorandum
of the company in carrying on real estate development which weighed
with the Learned Single Judge to hold that the proposal was with the
intent to take over the lands for exploitation but it was the
consideration of the proposal put forth by the Applicant.
ORDER OF DIVISION BENCH DATED 23RD AUGUST, 2013 :
60. The order of 14th October, 2011 was carried in an Appeal being
Appeal No. 34 of 2012 and by order dated 23rd August, 2013, the
Appeal came to be dismissed. The Hon’ble Appellate Court noted the
decision of Hon’ble Apex Court in M/s Meghal Homes Pvt Ltd vs Shree
Niwas Girni K.K. Samiti & Ors (supra). Before the Appellate Court, an
attempt was made to distinguish the judgment of Meghal Homes
(supra) raising the same contention as sought to be raised in present
application that in Meghal Homes (supra), that the assets of the
company therein were sought to be sold to developer whereas in
present case there is not transfer of assets of the company and the
assets would be used to carry on real estate business. The Appellate
Court declined to accept the submission and applied the tests
enunciated in Meghal Homes (supra). The Appellate Court held that it
would be appropriate if the company court were to be moved by way
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of application for reconstruction under Section 391 to take the
company out of winding up. The findings of the Hon’ble Division Bench
can be broadly summarised as under:
(a) An amendment of the objects would be required to enable the
company to enter upon real estate construction.
(b) Upon winding up order being passed, each member is entitled to
the distribution of the company’s assets in accordance with his
right and interest in the company after the liabilities have been
discharged.
(c) All shareholders of the company have not joined in the application
for stay of winding up nor have they consented to it.
(d) The company court to be moved by way of application for
reconstruction under Section 391, which would give the members
an opportunity to vote on the proposal and the company court
would still consider the aspects of commercial morality and public
interest to bind the dissenting minority while sanctioning the
scheme.
(e) The preference by the substantial body of shareholders is not
before the Court.
61. The Applicant and the Respondent No. 2 preferred Special Leave
Petition No. 1387 of 2014 before the Hon’ble Apex Court, which came
to be dismissed on 23rd February, 2016. The Review Petition was
dismissed by order dated 3rd August, 2016.
SECOND APPLICATION NO. 3663 OF 2022:
62. The second attempt to seek stay of winding up was only by the
present Applicant stating broadly the same revival proposal. By the
time, the second application was filed, the Applicant had entered into
an Agreement for Settlement dated 28th February, 2020 with the
Respondent No 3 Union and about 90% workers have signed individual
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consent letters accepting terms of the agreement and the workers
who had earlier opposed the application supported the Applicant. The
textile policy was introduced by the State Government in consonance
with which the Applicant undertook to establish educational institution
for imparting training and course in relation to textile industry.
63. The liability of the secured creditors i.e. the Applicant and the
Respondent No 2 was shown as Rs 737.44 crores. The settlement of
the claims was proposed as under:
(a) As per the agreement for settlement, the workers shall be
paid cumulative amount of Rs 237.22 crores and each
workers would get Rs 5,25,000/- more from the
agreement than from liquidation. About 469 badli
workers and kin of deceased workers would get payment
under the agreement for settlement.
(b) Claims of co-operative societies:
– The claim of 10 co-operative societies/bodies of Rs 3.29
crores to be paid out of amount being deposited with OL.
(c) Claims of statutory creditors:
– The dues amounting to Rs 4.51 crores can be paid out of
amount being deposited with OL and any shortfall would
be met by the Applicant.
(d) Claims of secured creditors i.e. the Applicant and
Respondent No 2 of Rs 737.44 crores is agreed to be
deferred and would be received after stay of winding up
as agreed mutually between the Applicant and the
Company.
(e) Claims of 146 unsecured creditors Rs 4,12,18,801/- out of
which 70 unsecured creditors have assigned their claims
to Applicant No. 2. The Applicant and two other
companies being part of Shapoorji Pallonji group have
agreed to defer the recovery of their dues. The rest ofSairaj 49 of 76
IA-6953-2025 (f).docthe unsecured creditors of Rs 5.45 crores would be
paid by the Applicant.
64. The Applicant placed on record copy of the pre-feasability report
dated 8th April, 2022. The Applicant stated that it was willing to deposit
Rs 239.13 crores to show its bona fides and is willing to advance Rs 40
crores to the company to commence its business. All amounts to be
treated as loan by Applicant to the Company to be repaid along with
interest. The Applicant also conveyed its willingness to modify its
object clause to start the business of real estate.
65. The learned Single Judge by order dated 21 st December, 2022
noted the history of the litigation, the applications of workers seeking
enforcement of obligations under the agreement for settlement, the
Official Liquidator’s Report No. 56 of 2022 setting out the impediment
in sale due to occupation by ex-workers and encroachments. In light of
consensus between parties as regards revival and after considering the
revival proposal in order to test the bona fides directed deposit of Rs.
240 crores and filing of undertaking. Pursuant to the compliance of the
order dated 21st December, 2022, by order of 9th October, 2023, the
Interim Application came to be allowed staying winding-up.
66. The order of learned Single Judge came to be challenged by
present Respondent Nos. 4 and 5 by Appeal (L) No. 421 of 2024, which
was allowed vide order dated 22 nd January, 2025. In the Appeal
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proceedings, one of the submissions on behalf of the present Applicant
was that the order of 14th October, 2011 cannot be looked into which
was rejected by the Hon’ble Division Bench which noted that in earlier
round of litigation the order of 14th October, 2011 was held to be only
correct view. The Hon’ble Division Bench observed that the earlier
orders had specially noted that the Shapoor Pallonji groups of which
the Applicant and Respondent No 2 are group companies were
interested in acquiring the properties of the company at throw away
price and that the interim application therein contains no pleadings to
dispel or vary these findings. The Hon’ble Division Bench noted that
despite the order of 23rd August, 2013 in first round of litigation all
share holders have not been joined in the second application.
67. At the stage of Appeal in second round of litigation, the object
clause of Memorandum of Association of company (in liquidation) had
already undergone the change.
68. The Hon’ble Division Bench permitted filing of fresh application
after complete disclosure and after annexing all relevant documents,
judgments and orders which, if made, to be considered in accordance
with law and principles that govern the discretion to grant stay under
Section 466 of the Companies Act vide order dated 31 st January, 2025
the Hon’ble Apex Court declined to interfere with the order of Hon’ble
Division Bench and reserved the liberty to file fresh application and
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directed expeditious hearing of the Application, if filed. The Hon’ble
Apex Court further directed that the question as to whether the
creditor’s dues, etc., the dues payable to the workers and their
eligibility also be examined but no further payment be made out of the
amount deposited by the Applicant. The Hon’ble Apex Court granted
liberty to raise all pleas and contentions including the prayer of
winding up ought to be raised before the Company Judge and
dismissed the Special Leave Petition. A similar order was passed on 3 rd
February, 2025 by the Hon’ble Apex Court in Special Leave Petition
filed by the Respondent No. 3 challenging the same order of the
Hon’ble Division Bench dated 22nd January, 2025.
FINDINGS BINDING ON THIS COURT:
69. The finding of the learned Single Judge as to the real intent of
an identical proposal would continue to bind this Court in the present
application and the subsequent amendment of object clause will not
wipe out the said finding. Upon dismissal of SLP, the finding has
attained finality. The revival proposal in present proposal is identical
proposal of enabling the company to carry out real estate
development by infusion of funds by the Applicant cannot be viewed
differently by this Court. The changed circumstances, if any, would not
result in diluting the findings rendered in order of 14 th October, 2011,
on the revival proposal and would continue to bind this Court. Even in
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first round of litigation, the position was similar as existing today as to
Applicant and Respondent No. 2 being majority shareholders, revival
proposal of carrying out real estate business by Company (in
liquidation) and infusion of funds by Applicant and the unviability of
the textile business. The identical proposal of use of assets of the
Company for real estate business was held to be an attempt to take
over the said lands for exploitation in the real estate market, which
continues to bind this Court.
TESTS FOR PERMANENT STAY OF WINDING UP :
70. Despite the above, this Court has considered the revival
proposal by applying the triple tests formulated by the Hon’ble Apex
Court in Meghal Homes (supra) of bona fides, commercial morality and
public interest.
BONA FIDES:
STATUS OF APPLICANT AND RESPONDENT NO. 2 :
71. The Applicant and the Respondent No 2 claim to be majority
shareholder and only secured creditors of the Company in liquidation.
It is claimed in the application that by virtue of two deeds of
assignment dated 1st December, 2006 and 31st August, 2007, the
Applicant has obtained assignment of debts owed by the Company to
financial institutions, which debt is secured by creation of mortgage
over the company’s land at Chunnabatti, Sion. In the present
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application, the debt claimed is Rs. 985 crores and it is pleaded that the
recovery certificate of DRT dated 26th February, 2003 awards interest
@ 16% p.a. The DRT vide order dated 19th May, 2014 has recognised
the assignment of debt in recovery certificate and replaced the
Applicant as creditor in DRT proceedings.
72. The deeds of assignment and the DRT orders are not placed on
record, however, there is no denial as to existence of debt whether
assigned to the Applicant or still standing in name of IDBI and BOB.
The objection by the Respondent Nos 4 and 5 is as regards the
quantum of debt which swelled from first round of litigation till
present application. In so far as the Respondent No 2 is concerned, the
Official Liquidator states that the Respondent No 2’s claim has been
adjudicated for an amount of Rs 57,39,17,238 as per notice of
admission of proof dated 27th February, 2006. The Respondent No 2
has therefore relinquished its security in favour of the general body of
creditors and is standing inside winding up.
73. In so far as the Applicant is concerned, the Official Liquidator
and the Applicant claims that the Applicant is a secured creditor
standing outside winding up and is entitled to enforce its decree
against the assets of the Company. Till date, the security interest has
not been realised by the Applicant, though, it claims to have secured
assignments in the year 2005-2007 and substitution in the recovery
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certificate in the year 2014. The Tribunal under The Recovery of Debts
and Bankruptcy Act, 1993 by itself or through its recovery officer is
empowered to sell the assets of the debtor Company in liquidation by
associating the Official Liquidator since there is pari passu charge on
assets under Section 529A of Companies Act, which remedy has not
been exhausted by the Applicant till date even after lapse of
considerable period.
74. In the written submissions of the Official Liquidator, the status
of Respondent No. 2 is stated to be secured creditor standing within
winding up and its interest claim is capped @4% p.a as per Rule 179 of
Companies Act. The status of Applicant is claimed by the Official
Liquidator as that of secured a secured creditor standing outside
winding up as holder of Recovery Certificate endorsing the entitlement
of Applicant to dues of approximately Rs. 985 crores comprising of
principal plus interest in terms of recovery certificate and not capped
@ 4% p.a. In effect the OL justified the claim of the Applicant which
swelled considerably over the years by putting forth the non
applicability of Rule 179 of Company Court Rules which caps the
interest @ 4% p.a. in case of creditors standing within winding up.
75. In light of directions issued by Hon’ble Apex Court in its order
dated 31st January, 2025, this Court, during the hearing called upon the
OL to submit the statement of creditors, which submitted as per the
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record of claims lodged with OL. The statement states that the
Respondent No. 3 Union herein filed claim for an aggregate amount of
Rs 15,05,87,247/-. Referring to OLR No 56 of 2022, the statement
states that the secured creditors of the company are the Applicant and
Respondent No 2. On 13th January, 2003, DRT directed the OL to pay
certain amount to IDBI and BOB and OL has paid Rs 3,59,07,810/- to
IDBI. The claim of Respondent No 2 has been adjudicated for Rs
57,39,17,238/- as per notice of admission of proof. OL has received a
preferential claim of Rs 49,30,14,469.76/- out of which Rs. 5,25,50,157/-
has been adjudicated/admitted. There are total of 146
unsecured/ordinary claims received by OL which are adjudicated for Rs
66,44,45,086/-. The tabular statement of the creditors submitted are as
under:
Sr. List of claimants Final Dividend
N (Less First Paid Balance
o. Dividend of Rs.
50,000/- out of
Sale Proceed
of Andheri
Flats)
Except Sr. 3
to 7.
1 List of 2,23,18,85,705 1,61,33,78,303 61,85,07,402
workers(Final
Dividend,Paid and
Balance)
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2 List of Head Office 3,01,00,000 2,84,50,000 16,50,000
Employees (Final
Dividend, Paid and
Balance)
3 List of Government 4,51,85,327 - 4,51,85,327
dues (final
dividend, paid and
balance)
4 List of Societies Dividend 2,17,64,239 1,12,36,176
(Final Dividend, 3,30,00,415
paid and Balance)
5 List of Unsecured Dividend 1,35,52,517 2,18,03,375
Creditors (Final 3,53,55,892
Dividend,Paid and
Balance)
6 List of Unsecured 1,83,63,741 1,17,12,480 66,51,261
Assignees (Final
Dividend, Paid and
Balance)
7 List of Additional 12,29,999 12,29,999 -
Worker (Final
Dividend,Paid and
Balance)
76. The statement makes reference to OLR No. 12 of 2021 which
was filed by the OL seeking certain directions from the Company Court,
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which was allowed by order of 23rd February, 2021. In so far as
direction (b) of the OLR is concerned, permission was sought to
declare dividend of Rs 16,00,14,476/- to the Applicant herein subject
to an undertaking that it will bring back the amount if and when called
by OL.
77. OLR No. 56 of 2022, which is annexed at Annexure “B” of the
statement states that the OL has paid to the Applicant Rs.
16,00,14,476/-. The position in law that exists is that the Debt Recovery
Tribunal is entitled to order the sale of the properties of the
debtor,even of a company-in-liquidation, through its Recovery Officer
but only after notice to the Official Liquidator or the Liquidator
appointed by the Company Court and after hearing him. In the
Company Court, any secured creditor who has not stood outside
winding up but wants to come before the Company Court has to
relinquish his security and prove his debt before the liquidator to seek
dividend. The assignors of the debt-IDBI has been paid by the OL,
dividend of about Rs. 16 crores was declared to the Applicant and
payment was made to the Applicant. Despite the declaration of
dividend in the year 2021, the OL and Applicant claims that the
Applicant is standing outside winding up and entitled to its inflated
claim by mounting interest @ 16% p.a..
78. In view of the payment of dividend to the Applicant as reflected
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from the material on record in contradistinction to the claim of the OL
and Applicant that the Applicant’s standing outside winding up, the
application was listed for direction for clarification as regards the
status of the Applicant. There is no whisper in the written submissions
of OL about the direction of declaration of dividend sought and
allowed, by Company Court and consequent payment of Rs. 16 crores
to the Applicant. It is not as if the written submissions made no
reference to the OLR No. 21 of 2021 but restricted the submission only
in respect of part payment made of the workmen’s dues from the sale
proceeds of Andheri flat. The OL was therefore conscious of the
directions sought in the OLR No 21 of 2021 and non mentioning of the
declaration of dividend is not an unintentional inadvertent omission.
79. It was sought to be contended by Mr. Carvalho, that the amount
was paid to the Applicant pursuant to an agreement for settlement
entered into between the workers of the company and the Applicant.
There is no explanation as to why the OL would seek to enforce a
private settlement between the Applicant and the workers of the
company in liquidation. There is no basis for such payout to the
Applicant, who all along claimed to be a secured creditor standing
outside winding up and no explanation has been tendered for
convenient omission of the payout of Rs 16 crores to the Applicant in
the 2021. The Applicant has also chosen to conveniently omit the
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dividend declared and payment received and stressed upon its security
interest justifying its entitlement to the inflated debt by claiming
interest @16% p.a. on the assigned debt. The proceeds in the hands of
the official liquidator are not available for distribution at the whims of
the official liquidator and is required to be distributed in accordance
with the order of priority as per the Companies Act. The payment of
dividend, while maintaining that the Applicant is a secured creditor
standing outside winding up, makes the Official Liquidator vulnerable
to the charge of fraudulent preference. It was necessary to invite all
claims and thereafter adjudicate the claims and declare dividend
accordingly. In event, the Applicant was secured creditor, it had the
right to seek enforcement of its security through the aegis of the Debt
Recovery Tribunal.
80. The entitlement of the Applicant to the proceeds available with
the OL arises only after the realisation of its security and payment of
workmen’s portion, for settlement of so much of its debt which was
not realised from the security. The written submissions filed by the
Applicant and the OL are conveniently silent about the said payment to
the Applicant. Although the order dated 23rd February, 2021 was
passed by this Court in OLR No. 12 of 2021 permitting declaration of
dividend, perusal of the order does not indicate that the Court was
apprised of the fact that the Applicant is a secured creditor standing
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outside winding up as in that event no such order of declaration of
dividend would have been passed.
81. Though the application was thereafter mentioned on behalf of
Applicant with an offer to return the sum of Rs 16 crores, it is too late
in the day to consider the said offer. The application seeking stay of
winding up should be bona fide application disclosing all facts relevant
to adjudicate the application. The claim of the creditors is an important
facet to be considered while adjudicating the application and in light of
suppression of this material fact, the Application ought to have been
dismissed on this count alone. The cascading effect of the declaration
of dividend would be upon the quantum of debt claimed by the
Applicant as it seeks to enforce the payment of interest as per the
recovery certificate and not as per Rule 179 of the Company Court
Rules.
82. Proceeding further, the facts would reveal that the present
application is nothing but a ruse to obtain the valuable land for
exploitation in real estate market. At the core of the dispute lies 45
acres of land in the heart of city of Mumbai located in prime residential
and commercial area which would command astronomical price given
the potential of the property for development. The manner in which
the Applicant has attempted to lay its hands on this valuable property
of the company in liquidation leaves much to be desired. On 13 th
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February, 2002, the OL was appointed as provisional liquidator. On 1 st
December, 2006, the Applicant acquired the secured debt against the
Company from SASF vide deed of assignment. On 31 st August, 2007,
the applicant acquired the secured debt from Bank of Baroda. The
Applicant acquired 29.29% shareholding in Swadeshi Mills vide order
dated 4th March, 2010, 21st June, 2010 and 14th October, 2010. The
Applicant has obtained the assignment of 70 unsecured debts. In the
year 2014, the Applicant came on record as holder of recovery
certificate issued by DRT in place of IDBI and BOB, the secured
creditors of the recovery certificate. The Applicant thereafter acquired
1.26% of the share holding on 30th October, 2023. The acquisitions of
the debt and share holding of the Applicant is no doubt in accordance
with law, however, the same shows a systematic pattern of
arrangement or compromise which otherwise would have required
compliance of the procedure mandated under Section 391 to 394 of
the Companies Act.
COMMERCIAL MORALITY:
83. The Hon’ble Division Bench in its order of 23 rd August, 2013
opined about the desirability of moving an application under Section
391 of Companies Act as the scheme of reconstruction would be laid
threadbare before the share holders who would take an informed
decision thereon. The added benefit was that upon the company court
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minority.
84. Instead of adopting the course suggested, the Applicants have
amended the object clause of the Company (in liquidation) to diversify
the business interest into real estate development, which has been
approved by 54% share holders out of which 53.25% were the
Applicant and the Respondent No 2 themselves. The explanatory
statement in respect of Item 6 dealing with the alteration of
memorandum of association of the company appended to the notice
calling the extraordinary general meeting of the share holders reads as
under:
” Item No 6:
TO APPROVE THE ALTERATION OF MEMORANDUM
OF ASSOCIATION OF THE COMPANY IN
ACCORDANCE WITH THE COMPANIES ACT 2013:
The Svadeshi Mills Company Limited was
incorporated on September 13, 1886 under the
provision of Act no VI of 1882 of Legislative Council
of India.
The existing Memorandum of Association (“MOA”)
were based on the earlier prevailing laws and several
clauses/resolutions in the existing MOA contain
reference to specific sections of the Companies Act,
1956 which are no longer in force. Also, the Company
now desires to enter into new business activities
relating to real estate development.
In order to align the existing MOA in lines with the
provisions of the Companies Act, 2013 and to reflect
the proposed changes in business activities, it is
hereby proposed to alter the MOA accordingly……”
85. The Applicant, by adopting the course of amendment of object
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clause and the explanatory statement which conveys an impression of
the memorandum being altered to align the Memorandum in lines with
the provisions of Companies Act, 2013 and incidentally to enter into
new business, instead of taking recourse to Section 391, ensured that
the shareholders were kept unaware of the proposal of seeking stay of
winding up. The Hon’ble Division Bench by order of 23rd August, 2013
had sought to protect the proprietary interest of balance 48% share
holders by impressing the need of consent of substantial body of share
holders to support the stay of winding up. The share holders upon the
order of winding up being passed is entitled to a share in the
distribution of the company’s assets after liabilities have been
discharged and it is this right which is competing with the stay of
winding up which was required to be put for consideration before the
share holders. Having failed to place the revival proposal before the
shareholders, there can be no implied consent of shareholders to the
revival proposal. Consequently, the shareholders were required to be
impleaded in present application as opined in the orders passed in
previous round of litigation.
86. The contention of Applicants is that it has met the highest
standard of morality by ensuring 100% payment of dues of all
creditors, especially the workers. Let us test this contention by
considering the revival proposal as regards the payment of liabilities.
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The Applicant proposes:
(a) deferment of dues of Applicant and Respondent No
2 of about INR 1100.81 crores.
(b) deferment of dues of INR 124.49 of 70 unsecured
creditors assigned to the Shapoorji Pallonji Group.
(c) deferment of dues of INR 1.09 crores paid by
Applicant towards security charges.
The Applicant proposes to pay the following dues:
(a) INR 237.08 crores to the workers and INR
240 crores has been deposited with OL in 2nd
round of litigation.
(b) INR 5.45 crores to the remaining unsecured
creditors
(c) INR 3.29 crores to the eight co-operative
societies
(d) INR 4.51 crores of statutory dues
(e) INR 70 lakhs to ESI and Profession Tax
department
(f) Payment of liquidation costs.
87. The Applicant claims that the Applicant and Respondent No 2
are the secured creditors as on 22 nd January, 2025 with dues
amounting to about Rs. 1,100.81 Crores. In the year 2011 at the time of
filing the first application seeking stay of winding up, the total
liabilities of the Company was Rs. 366.89 crores which included the
dues of Applicant and Respondent No 2 being Rs. 193.85 crores. The
dues of the Company in the second round of litigation in the year 2022
was stated to be Rs. 1103.09 including dues of the Applicant and
Respondent No 2 being Rs. 737.44 crores. In the present application
the dues of the Company in liquidation have swelled to Rs. 1477.01
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which included the dues of the Applicant and Respondent No 2 of Rs.
1100.81 crores.
88. The enhanced liability is substantially by reason of the inflated
claim of the Applicant which as discussed above, upon declaration and
payment of dividend applied ought to have the interest @ 4% p.a. cap.
The debt stand frozen as on the date of winding up. For purpose of
receiving dividend out of the sale proceeds of the company’s assets,
the Applicant claims to stand inside winding up and receive dividend
whereas for the purpose of avoiding the restrictive rate of interest, the
Applicant claims to be standing outside winding up.
89. The claims of the secured creditors is thus an inflated claim and
cannot be accepted. The Hon’ble Apex Court while granting liberty to
the Applicant to file application afresh had directed this Court to
consider whether the creditors etc have been paid. This examination
requires an honest disclosure of the creditors dues and in the absence
of such disclosure, there can be no examination of settlement of
liabilities. This also takes away the argument of the Applicant that
what can be sold is only an equity of redemption as the Applicant by its
act of accepting dividend has relinquished its security in favour of the
general body of creditors.
90. Even otherwise, the revival proposal defers the payment of all
amounts due to the Applicant and Respondent No 2 as per mutually
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agreed terms with the Company in liquidation after stay of winding up.
The proposal conveniently keeps the repayment open ended and there
is no concrete proposal as to how the purported claims of the
Applicant and Respondent No 2 will be met. There are no details about
the rate of interest, the manner in which the liability will be met and
the repayment proposed on mutually agreed terms with Company in
liquidation is naturally going to be influenced by the Applicant and
Respondent No 2 themselves who are the majority share holders.
91. The eo instanti repayment is proposed of about Rs. 252 crores
including the workers dues of Rs. 237.08 crores out of the funds
deposited by the Applicant with the OL of Rs. 240 crores and some
additional insignificant payment. The sum of Rs. 240 crores is also
raised by encumbering the properties of the company in liquidation. In
return, without expending any of its funds, by way of back door
method, the Applicant and Respondent No 2 seeks to utilise the
valuable asset of the company in liquidation without having to face
public auction. Even accepting that the asset will remain with the
Company, the profits out of re-development will obviously first be
utilised for repayment of the Applicant and Respondent No 2’s dues
which would be considerable with the mounting interest.
92. It is for the above reason that the entire revival proposal was
required to be presented to the share holders so that an informed
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decision could have been taken by the share holders on the various
facets of the revival proposal. The Applicant by choosing the method
of amending the object clause ensured that the proposal was out of
reach of the share holders and there is no informed decision of the
share holders. In the first as well as second round of litigation, the
Courts have emphasised on the presence of share holders to the
application for stay of winding up to protect their interests. Despite
the specific observations, the Applicant has neither presented the
proposal to the share holders nor joined them in the present
application.
93. In any event, it is well settled that the repayment of creditors
cannot be the sole criteria for exercising the jurisdiction of stay. The
workers are even otherwise entitled to priority of debts. There are only
two secured creditors i.e the Applicant and Respondent No 2 and in
light of the material on record, apparently they have relinquished their
security interest and are standing inside winding up and would take
haircut as per the waterfall mechanism.
94. In these circumstances, I am unable to subscribe to the
contention that the highest standard of commercial morality is met.
The conduct of the Applicant and Respondent No 2 is far from ethical
business standard and is actuated by mala fides.
PUBLIC INTEREST:
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95. The public interest is sought to be demonstrated from the
provision for redevelopment of dilapidated workers chawls and
facilitating low cost housing through MHADA, establishing textile
educational institutions, opening up public space as per DCRP 2034 and
increased revenue for government authorities and public
infrastructures. The aforesaid public interest is the natural
concomitant of the grant of stay of winding up. The provisions of DCPR
2034 mandate equitable distribution of mill land when put for
redevelopment. 1/3rd of land must be allocated for public spaces, 1/3 rd
of land must be handed over to MHADA for developing affordable
housing for displaced mill workers and 1/3 rd of land is available for re-
development. The Applicant has not proposed any voluntary handing
over of land for public purpose apart from what is mandated by
statutory provisions. In exchange the Applicant gains additional FSI
which is personal benefit to the Applicant and Respondent No. 2.
CHANGED CIRCUMSTANCES:
96. Dealing with the production of feasibility report, which
according to the Applicant constitutes change in circumstances, the
learned Single Judge while rejecting the first Application in 2011
considered the submissions as regards the unviability of revival of
textile mills to hold that there is nothing on record from which it can
be conclusively held that the textile business is altogether prohibited
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or not permitted in Island city. It held that it is the perception of the
Applicants that it is not practicable and feasible to carry on such
business and that the liquidator has not come forward with exclusive
or decisive report on this aspect.
97. In this application, the Applicant has placed on record the
technical feasibility report dated 8th April, 2022 of one MITCOM. The
report sets out the background of the litigation as well as the liabilities
then goes into the overview of the textile industry and its value chain.
The report further sets out the different types and amounts of utilities
required in the textiles and labour force, the type of pollution and
waste generated in the textile industry. Chapter VI of the Report,
sets out major reasons influencing the location of industry in Mumbai
region as regards the availability of raw material, labour, proximity to
market, fire safety, etc. The report concludes that looking at the
pollution generated, the required change in labour compared to
textile industry norms, difficulty in logistic requirement by various
textile segments, fire safety and close vicinity of highly eco sensitive
area and after considering the major reasons it can be concluded that
setting up of textile industries would not be viable in terms of
pollution, logistics, and not viable in terms of economics at the existing
site in the Mumbai. The second feasibility report dated 22nd May, 2025
reiterates the conclusion of the earlier feasibility report. It states that
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no new textile units have been established in the region and existing
plants have shut down due to their unsustainable financial situation.
Importantly, the report states that due to logistical constraints and
cost implications many textile industries originally based in Mumbai
have relocated closer to cotton growing regions. The report also
mentions about the integrated and sustainable textile policy of
Government of Maharashtra 2023-2028. The report, when read,
signifies that there is possibility of relocation of the textile business
from Mumbai to other areas within Maharashtra.
98. The Applicant does not propose relocation of the business of
textile mills or using portions of its land for purpose of revival but
proposes exploitation of the land by reviving the corporate existence
of the company in liquidation. The Hon’ble Division Bench in the order
dated 23rd August, 2013 in the first round of litigation did not subscribe
to the submission that mere revival of the corporate existence of the
erstwhile company in liquidation would be sufficient for intervention
of court to grant stay of winding up. The feasibility report does not
take the case of the Applicant any further from the position that it was
at the time when the first application was filed in the year 2011. The
findings of the learned Single Judge which was confirmed by the
Division Bench would continue to bind this Court.
99. The holding of the EOGM is presented as changed circumstance
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enough to warrant consideration of the revival proposal. This Court in
the preceding paragraphs has already discussed about the absence of
an informed decision of the share holders on the revival proposal and
the change in the object clause of the memorandum does not
constitute change of circumstances to support the stay of winding up.
There is therefore no substance in the contention of the Applicant that
there is overwhelming share holders approval to the revival proposal.
100. There is no full settlement of the creditors dues as contended
and substantial dues of the Applicant and the Respondent No 2 have
been left unresolved. It is clear that the Applicant and Respondent No
2 subsequent to the redevelopment of the property intends to take a
lion’s share out of the profits of redevelopment, leaving the stake
holders high and dry. The workers consent cannot form the singular
driving force to accept the proposed scheme of revival.
FAILURE OF LIQUIDATION PROCESS FOR OVER 20 YEARS:
101. The provisional liquidator was appointed on 13/2/2002 and the
order of winding up was passed on 5th September, 2005. The OL has
disposed of the entire plant and machinery and certain immovable
property of the company in liquidation, invited claims, taken action
against encroachments, appointed valuers for valuation of property.
The Applicant cannot take advantage of slow pace at which the
liquidation process has been moved particularly considering that the
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process has been interdicted with repeated attempts for stay of
winding up, passing of status quo orders, which litigation has reached
upto the Hon’ble Apex Court.
102. Though it is contended that the subject land has been heavily
encroached making it difficult for the OL to sell the land, the OL has
placed on record the attempts made to remove the encroachments. It
is contended by Respondent Nos 4 and 5 that the out of larger land of
about 48 acres, 5 to 10 acres is encroached, which contention has not
been shown to be incorrect. Considering the proportion of encroached
land to the larger land, this Court is unable to accept that the land
cannot be sold by public auction. The stalling of liquidation process
constitutes failure of the OL which is tasked with the duty of
proceeding expeditiously with the winding up proceedings. The
property is custodia legis since the year 2002 and it is their duty to
ensure that the assets of the company in liquidation are properly
secured. The OL has sought directions for payment of security charges
and it is evident that the property is being guarded and it is surprising
that despite so, it is claimed that the property is encroached.
103. There is no credible and comprehensive revival plan presented
for this Court to be satisfied that the winding up ought to be stayed.
The OL is still at the stage of valuing the property and there is not a
singular attempt of public auction for this Court to come to a
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conclusion that there cannot be value maximisation through public
auction. This Court is required to be satisfied that the proposal for
revival is not a ruse to dispose of the assets of the company. Even if the
development of the land would take place as an asset of the Company,
in the facts and circumstances of the present case, the revival proposal
is with the intent to enable the Applicant and Respondent No 2 to reap
the benefits of the redevelopment of the valuable asset and not for
the benefit of the substantial body of stakeholders.
104. Dealing with the decisions relied upon in support of the stay of
winding up. In the case of Nutan Mills Employees Co-operative Credit
Society Limited (supra) and Narayan Deorao Javle (Deceased) vs.
Krishna (supra), the issue as regards the equity of redemption has
been discussed. There is no quarrel with the said proposition of law. In
the present case, as already discussed above, the Applicant has
accepted dividend from the Liquidator and has therefore, relinquished
its security in favour of the general body of creditors. In Narayan
Deorao Javle (supra), the Hon’ble Apex Court has held that the right of
redemption is a statutory and legal right. In the case of Gujarat
Bottling Company Limited (supra), the Court has held that in the
context of suppression of facts that it is not possible to deny relief to a
party when the facts have come to the knowledge of the Court before
consideration for grant of relief. The relevance of the said judgment
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has not been shown.
105. Insofar as the decisions relied upon on behalf of Respondent No.
2, in Sudarshan Chits (India) Limited (supra), the Kerala High Court has
held that it should be the policy of the Court to promote revival of a
company if it is shown that there is reasonable prospect of resurrection
and survival. This was not the case where after winding up order has
been passed, stay is sought to the order of winding-up in which case,
the test formulated in Meghal Homes (supra) is required to be
satisfied.
106. In the case of Wearwell Cycle Co. (I) Ltd. (supra), the Delhi High
Court leaned in favor of revival of the company as against auction of
assets and distribution of proceedings by the Official Liquidator to
various parties. Even accepting the view of Delhi High Court, the revival
proposal is required to meet the test of bona fides, commercial
morality and public interest which is not met in the present case and
the scheme in the present case is a ruse to reap the benefits of the
development without sharing the same with the other stakeholders.
107. In the case of Government of Karnataka represented by KSIIDC
(supra), the Karnataka High Court had held that revival of the company
does not necessarily mean the revival and restoration of the usual
manufacturing or business activity and includes the best utilization of
its assets including the vacant land. The observation of the Karnataka
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High Court is subject to the qualification that the adequate
arrangements are made to free the assets from the charge of creditors
and worker’s liabilities which in turn requires the revival proposal to be
bona fide which is not so as held in the present case. The decision of
Shriniwas Girni Kamgar Kruti Samiti (supra) appears to be one of off-
shoot litigation of Meghal Homes (supra).
108. In light of the above discussion, I am not inclined to allow the
Interim Application. The Application stands dismissed.
[Sharmila U. Deshmukh]
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